- Huge backlog of $441 billion will power the company going forward.
- Operating margins increasing, providing better earnings power.
- Company is buying back shares and increasing its dividend payout to reward patient shareholders.
Some of the highlights covered by the company include:
· Achieved 787 productivity
· Completed 737 max firm configuration
· Launched 777x and 787-10
· Long-term labor stability with new union agreements
· Strategically addressed pension liability
· Achieved USAF tanker firm configuration
One of the key areas of focus was to "deliver on the strength of our backlog." Essentially, Boeing would like to convert its backlog into recorded revenue to generate growth for the company and shareholders.
The company's current backlog stands at $441 billion, a sizable increase from the $390 billion a year ago. This backlog is made up of $374 billion for commercial planes and $67 billion in the defense, space and security segment.
The commercial segment backlog consists of over 5,100 airplanes. Defense spending has been cut in the United States, but you wouldn't know it from the Boeing backlog. The strength of the backlog is also coming from strong international sales, which made up 30% of the reported backlog for the segment.
One of the keys to the defense backlog is the KC-46, a transport aircraft. Boeing will deliver 179 of these planes to the United States Air Force through 2027. The company's first flight is scheduled to take place in the first quarter of fiscal 2015. If everything goes well, Boeing will deliver its first 18 planes in fiscal 2017.
Margin expansion is another key area of growth going forward. Anytime billion dollar companies can increase their operating margins, a significant amount of cash flows down to the bottom line. Boeing would like to "expand margins long-term."
In fiscal 2012, Boeing had operating margins of 8.8%. That number got a boost in fiscal 2013 to a reported 9.1%. With the increased efficiencies and higher margin planes, Boeing is now forecasting fiscal 2014 operating margins to increase to 9.5%.
Perhaps the biggest area for Boeing right now is the production of its 787 aircraft. The company recently transitioned to production capabilities of 10 787s per month. The company notes that Charleston is on schedule to transition to making 3x 787s a month, which would boost output. Boeing will deliver 787s to 18 new customers this year.
Current production for major planes is:
· 737: 42 per month
· 777: 8.3 per month
· 787: 10 per month
The 787 remains a huge part of Boeing's future. The company's commercial backlog was 52% twin aisle and 46% single aisle. The 787 made up the majority of the twin aisle backlog.
737 Max Update
On May 20th, Boeing provided the news that the upcoming 737 Max had surpassed the 2000 order mark. This marked the fastest selling plane in Boeing's history. Total backlog for the 737 Max now stands at $209 billion. Boeing said it has received 50% more orders versus its direct competitors since the launch of the 737 Max. Final assembly for the first commercial 737 Max will take place in mid-2015. The first plane will take to the sky in 2016. If everything stays on schedule, Boeing will launch its first deliveries with Southwest Airlines in the third quarter of 2017.
Boeing continues to be very friendly to its patient shareholders. Owners of Boeing stock should continue to see their shares increase with growth and capital returns. In fact, under the "use of cash" listed items, "continued share repurchase" was the first bullet point. The second point was "maintain competitive dividend yield."
In 2013, Boeing raised its quarterly dividend payout to $0.73. This was a huge increase from the $0.485 quarterly payout in 2013. From 2009 to 2011, Boeing paid out $0.42 quarterly without raising the payout amount. Now, Boeing seems dedicated to increasing its dividend yield, which is only 2.2%.
Boeing's 2014 outlook calls for the following:
· Revenue of $87.5 to $90.5 billion
· Earnings per share of $7.15 to $7.35
· Operating cash flow: $7 billion
That guidance consists of:
· Commercial: $57.5 to $59.5 billion
· Defense/Space/Security: $30.0 to $31.0 billion
Since the investor day presentation took place, Boeing has announced two strategic acquisitions:
· Acquired AerData to expand the airplane maintenance and leasing market. AerData provides integrated software solutions for lease management. The company has offices located in The Netherlands, United Kingdom and Ireland. This deal will benefit the company's higher margin maintenance and leasing segments and also help with international markets.
· Acquired ETS Aviation, the leader in fuel efficiency management for airplanes. This acquisitions expand the fuel efficiency capabilities for Boeing. ETS helps 120 different airlines identify opportunities for fuel savings. ETS Aviation supports over 600 aircraft, which represent 900,000 annual flights. With fuel costs making up 40% of airline operating costs, this is a huge growing market. The deal will help Boeing with fuel saving opportunities in its own operations and also help with incremental service revenue from airlines.
Shares of Boeing continue to be a good bet on the huge backlog the company is cashing in on. Orders for new planes continue to rack up and more efficient planes are designed and manufactured by Boeing. A strong dividend and share buyback program will also reward investors along the way. Analysts project 4% revenue growth each of the next two fiscal years. This isn't a huge return, but with strong yield and improving margins, Boeing will be a great stock to own.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.